Correlation Between Northwest Biotherapeutics and Longboard Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both Northwest Biotherapeutics and Longboard Pharmaceuticals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northwest Biotherapeutics and Longboard Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northwest Biotherapeutics and Longboard Pharmaceuticals, you can compare the effects of market volatilities on Northwest Biotherapeutics and Longboard Pharmaceuticals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northwest Biotherapeutics with a short position of Longboard Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Biotherapeutics and Longboard Pharmaceuticals.

Diversification Opportunities for Northwest Biotherapeutics and Longboard Pharmaceuticals

-0.61

Correlation Coefficient

Northwest Biotherapeutics  Longboard Pharmaceuticals

Excellent diversification

The 3 months correlation between Northwest and Longboard is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Biotherapeutics and Longboard Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longboard Pharmaceuticals and Northwest Biotherapeutics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northwest Biotherapeutics are associated (or correlated) with Longboard Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longboard Pharmaceuticals has no effect on the direction of Northwest Biotherapeutics i.e., Northwest Biotherapeutics and Longboard Pharmaceuticals go up and down completely randomly.

Pair Corralation between Northwest Biotherapeutics and Longboard Pharmaceuticals

Given the investment horizon of 90 days Northwest Biotherapeutics is expected to under-perform the Longboard Pharmaceuticals. But the otc stock apears to be less risky and, when comparing its historical volatility, Northwest Biotherapeutics is 1.6 times less risky than Longboard Pharmaceuticals. The otc stock trades about -0.08 of its potential returns per unit of risk. The Longboard Pharmaceuticals is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,082  in Longboard Pharmaceuticals on September 22, 2024 and sell it today you would earn a total of  3,916  from holding Longboard Pharmaceuticals or generate 188.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.55%
Values	Daily Returns

Northwest Biotherapeutics  vs.  Longboard Pharmaceuticals

Northwest Biotherapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northwest Biotherapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Longboard Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Longboard Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unfluctuating basic indicators, Longboard Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northwest Biotherapeutics and Longboard Pharmaceuticals

The main advantage of trading using opposite Northwest Biotherapeutics and Longboard Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Biotherapeutics position performs unexpectedly, Longboard Pharmaceuticals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Longboard Pharmaceuticals will offset losses from the drop in Longboard Pharmaceuticals' long position.

The idea behind Northwest Biotherapeutics and Longboard Pharmaceuticals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.